I'm completely new to OpenVZ, but I've been wondering if it supports running KVM VMs inside OpenVZ, like Joyent's SmartOS does on the Illumos/Solaris kernel?

SmartOS does so for security reasons, which is why I turn to OpenVZ for a similar solution, as KVM seems somewhat hard to secure completely as it would require you to run SELinux along with sVirt (security extensions to Libvirt) to decently separate VMs.

However, if KVM instances were to be kept within separate OpenVZ containers, if understand it correctly, these instances wouldn't be able to see one another, thus adding a much needed security layer to my KVM deployments ...

Moreover, it would allow me to logically separate instances/appliances without needing to add complete a OS setup for each instance, which in turn would free resources in regards to my virtualization hosts.

Does anyone know if this can be acieved? -I know you can run KVM alongside OpenVZ, but inside??

I'm also not sure it can be done, but it could be possible. Please let us all know if you try.

I recently had to do some quick devel work with OpenVZ inside a KVM VM (Fedora host / SL6 guest / SL6 guest) and I can confirm that this works just fine. At least as much as I had to play with it... If I remember right I actually compiled a custom kernel, a bunch of other packages and than composed a live image in such a VM.